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SOUTHERN ENVIRONMENTAL LAW CENTER

Telephone919-967-1450 200 WESTFRANKLINSTREET, SUITE330 Facsimile 919-929-9421CHAPELHILL,NC27516-2559

Mareh 23,2010

Via U.S. and Electronic Mail

Wilmington District, U.S. Army Corps of EngineersATTN: CESAW-RGTodd Tugwell69 Darlington Ave.Wilmington, NC 28403todd. [email protected]

Re: Proposed Ecosystem Enhancement Program In-Lieu Fee Program Instrument

Dear Mr. Tugwell:

Please accept these comments on the Army Corps of Engineers' Agreement toContinue the Operation of North Carolina's In-Lieu Fee Programs Operated by the NorthCarolina Department of Environment and Natural Resources' Ecosystem EnhancementProgram ("Draft Instrument") on behalf of the Southern Environmental Law Center andthe Parnlico- Tar River Foundation. I This agreement is the latest in a series of agreementsbetween DENR and the Corps governing DO'l' and in-lieu fee mitigation in NorthCarolina. It should ensure that mitigation for unavoidable impacts replaces the functionsof destroyed streams and wetlands, rather than simply providing an easier permittingpath. As with any mitigation, avoidance and minimization must be prioritized, and it iscritical that EEP's program be structured to preserve the 404(b)(1) Guidelines'requirements that impacts to aquatic resources be avoided and minimized beforecompensatory mitigation is considered.

For the reasons outlined below, we recommend either abolishing the EEP in-lieufee mitigation program and moving more quickly toward a program utilizing mitigationbanks as preferred by the federal rule or continuing the EEP program with NCDOT as thesignatory and responsible entity under the instrument and the only entity that can utilizeEEP to meet mitigation obligations. The key conditions necessary to continue EEP

include no advance credits, a full accounting ofunmet compensatory mitigationobligations EEP has assumed, a plan to meet unrnet obligations including fundingsources, and enforcement and penalty provisions for failure to meet express commitmentsin the instrument. These measures are necessary because ofEEP's consistent failure tomeet commitments beginning with the WRP and continuing through the 2003 EEP MOA

1 We have a meeting scheduled with representatives ofDENR and EEP on Mareh 29 and reserve the rightto supplement these comments with any relevant information obtained from that meeting.

Charlottesville • Chapel Hill • Atlanta • Asheville • Charleston • Richmond • Washington, DC

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and 2007 MOA amendments. Under no circumstance should DENR, DWQ and DCM besignatories to an instrument because of the inherent conflict of interests as regulatoryagencies. These agencies should not both require compensatory mitigation and beresponsible for its performance.

I. DOT and the Corps Should Be the Only Signatories to an In-Lieu FccProgram Instrument.

The Draft Instrument should only have DOT and the Corps as signatories. DOTis the primary beneficiary of the mitigation accommodations embodied in EEP. DOTimpacts account for the majority ofEEP mitigation projects. DOT alone should retainultimate responsibility for its mitigation obligations. There must be a clear avenuethrough a permit to the permittee authorized to impact waters or wetlands and thecompensatory mitigation required as a condition of the permit which the permittee isresponse for providing.

DENR, DWQ, and DCM as signatories to the Draft Instrument have an inherentconflict of interest as regulatory agencies requiring compensatory mitigation forpermitted activities and providers of the compensatory mitigation their permits andauthorizations require. This conflict can play out in numerous ways that undermine boththe regulatory process and requirements and the compensatory mitigation program. First,compensatory mitigation is the least preferred form of mitigation under the 404(b )(1)Guidelines and state regulations. State regulatory agencies with an interest in developingand maximizing a compensatory mitigation program with payments to EEP will morelikely compromise on avoidance and minimization, the preferred forms of mitigation.Second, state agencies may compromise regulatory standards to address shortcomings incompensatory mitigation programs. For example, in 2007 DWQ issued guidanceallowing double counting of buffer and stream mitigation to enable EEP to meet ashortfall in mitigation obligations at minimal additional cost with a resulting windfallprofit to the mitigation provider. Similarly, in 2008 DWQ relaxed riparian buffermitigation standards to allow EEP and permittees greater latitude in meeting mitigationobligations. See Buffer Interpretation/Clarification #2008-019 (Dec. 3,2008) (relaxingrequirements for buffer mitigation). Third, as regulatory agencies with a role in

determining appropriate compensatory mitigation, DENR, DWQ, and DCM can direct inlieu payments to EEP instead of preferable on-site compensatory mitigation or completedcompensatory mitigation provided by a private mitigation bank. To eliminate thisconflict of interest that undermines both the regulatory programs and the overallcompensatory mitigation program, DENR, DWQ, and DCM should not be signatories totheMOA.

II. The Compensatory Mitigation Rule Restricts In-Lieu Fee Programs toImprove Accountability and Performance.

As was made clear by the Corps and EPA's initial proposal to eliminate in-lieufee programs, these programs are inherently less reliable than other sources ofcompensatory mitigation, such as mitigation banks. The rule's new requirements seek to

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address these weaknesses of in-lieu fee programs. The Draft Instrument must fully act onthese requirements to ensure that EEP's existing and future mitigation obligations arefully met in a timely manner, with appropriate mitigation.

A. The final compensatory mitigation rule is intended to provide

accountability and improve mitigation performance.

The Corps and EPA's compensatory mitigation rule envisions a limited role forin-lieu fee mitigation due to the inherent limitation of those programs in providingeffective, timely mitigation. Initially, the rule proposed to phase out in-lieu fee programsdue to their spotty environmental record and lack of efficiency. See CompensatoryMitigation for Losses of Aquatic Resources, 71 Fed. Reg. 15,520, 15,530 (proposed Mar.28,2006). Often, mitigation projects that are to be implemented after their associatedimpacts "are not undertaken or fail to meet permit conditions" related to acreage and lostfunctionality. National Research Council, Compensating for Wetland Losses under theClean Water Act 3 (2001). There is a "greater uncertainty associated with in-lieu feeprograms [as compared to private mitigation banks] regarding the final mitigation and itsadequacy to compensate for lost functions and services." Compensatory Mitigation forLosses of Aquatic Resources, 71 Fed. Reg. at 15,530. Furthermore, "[b]ecause credits areoften sold before the details ... of a specific compensatory mitigation project havc beendetermined," an in-lieu fee programs' prices typically do not fully cover the costs ofimplementing mitigation projects. rd. This inevitably leads to a long-term mitigationshortfall.

Although the final rule retained in-lieu fee programs as a mitigation option, it wasnot without reservation. Commenters noted that:

• "even with significant improvements to in-lieu fee mitigation, mitigation bankswould be more likely to minimize project uncertainties and temporal losses ofaquatic resource functions;"

• "prices for in-lieu fee credits arc often too low and fail to cover all of the costsnecessary to deliver the promised mitigation;"

• "in-lieu fee programs often require fees from multiple permitted projects beforethey can initiate compensation projects, resulting in substantial delays betweenpermitted impacts and compensation;" and

• "it was not fair for in-lieu fee programs to be allowed to continue to operate withlower or looser standards than mitigation banks and permittee-responsiblemitigation. "

73 Fed. Reg. 19,594, 19,599 (Apr. 10,2008). Counterbalancing these concerns werecomments stating that in limited circumstances in-lieu fee programs are "the best (01'

only) option for compensatory mitigation" in some areas. Id.

Balancing these concerns, the final rule continued in-lieu fcc programs as aseparate mitigation options subject to "new requirements ... to improve accountabilityand performance." Id. at 19,599 - 600. According to Corps and EPA, in-lieu fcc

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programs "can fulfill an important role in providing effective mitigation in circumstanceswhere mitigation banks and permittee-responsible mitigation are not practicable." Id. at19,599. Despite the "improvements to in-lieu fee programs, there will likely be lesstcmporalloss of resources associated with mitigation provided by banks than withmitigation provided by in-lieu fee programs," emphasizing the need for rigorous

enforcement of the rules to minimize that temporal loss. Id. at 19,600. The newrequirements arc "designed to ensure greater accountability and success in providingmitigation to fulfill credit sales in a timely manner." Id. at 19,612.

B. EEl) has historically been unaccountable for significant mitigationshortcomings under documents substantially similar to the draftinstrument.

EEP has not been immune from the limitations and shortcomings inherent in in-lieu fee programs that underlay the compensatory mitigation rule's demand for increasedaccountability and success in mitigation. EEP began as the Wetlands RestorationProgram ("WRP") in 1998 and was operated pursuant to a Memorandum ofUnderstanding ("1998 MOU") between the Corps and DENR .. The 1998 MOU set aspecific timeline that required, starting in year three, a site to be "identified and acquired"and under contract for development within one year of the date WRP received payment.1998 MOU at 6. A project would then have to be constructed within two years ofcontracting for development, meaning all mitigation would be constructed within threeyears of payment for mitigation. Id. WRP stated at the time that it was "committed toproviding compensatory mitigation for the majority of wetland impacts in advance of theloss of these wetlands." Id.

In 2001, five years after its establishment, WRP was profiled in the NationalAcademy of Sciences mitigation report with the following conclusion: "Little success ofrestoration of targeted wetland functions has yet to be quantified on any project."National Research Council, Compensating for Wetland Losses under the Clean WaterAct 210 (2001). WRP was absorbed by EEP in 2003. The obligation to meet thesetimelines continued. See Mem. of Agreement Among DENR, NCDOT, and USACE at(July 22,2003) ("2003 MOA"). EEP relaxed the tirneline in 2007, year nine under the1998 MOU. See 2007 Amendment to the 1998 MOU at 2. Not only had EEP failed tomeet its commitment to providing mitigation in advance of impacts, it could not meet theone-year time frame incorporated into the 1998 MOU. The 2007 Amendment modifiedthat agreement to allow additional time, up to three years, to identify and acquireadequate mitigation sites. Id. at 1-2. The effect of this 2007 MOU was that projectsintended to meet mitigation obligations accepted during 2007 would not be constructed

for five years following payment.

EEP has similarly failed to meet established deadlines in providing mitigation toDOT. In 2003, the Corps, DENR, and DOT entered a Memorandum of Agreement "toestablish the procedures for providing compensatory mitigation" through EEP. 2003MOA at 1. The 2003 MOA envisioned a compliance schedule under which, after a sevenyear period, all DOT project impacts would be mitigated by mitigation projects that had

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already been constructed and monitored for five years to ensure attainment of themitigation project's final success criteria. 2003 MOA at 16~18, amended by AmendmentNo.2 to the 2003 MOA at 3 (2007). In other words, mitigation projects for impacts in2020 were to have been implemented and constructed before 2015. This was a step in theright direction, as it recognized the importance of pre-impact mitigation. However, thistirneline was subsequently done away with and replaced. Amendment No.2 to the 2003MOA at 2A (replacing the language of 2003 MOA § X) (2007). The amended timelineeliminated the requirement that mitigation projects actually meet their final successcriteria. See 2003 MOA at 18, amended by Amendment No.2 to the 2003 MOA at 2-3(2007). The amended timeline also relaxed the compliance deadline, requiring only thatmitigation projects be constructed "at least two years ahead of the date of permitissuance" for the site. Amendment No.2 to the 2003 MOA at 3 (2007). Finally, the 2007Amendment only required EEP to complete construction on 75% of DOT projectsthrough fiscal year 2012~13 and reduced advance construction requirements in futureyears. Id.

This backtracking has continued in the Draft Instrument, removing requirementsthat EEP construct mitigation projects in advance of DOT projects. This relaxation isbest illustrated by considering a project permitted on July 1,2010, the first day of fiscalyear 20 1 O~11.

• Under the 2003 MOA, EEP would have been required to have mitigationconstructed for the project by the end of fiscal year 2007~08 and that mitigationwould be required to meet its success criteria by the end of 2012-13.

• Under the 2007 Amendment, EEP would have been required to acquire propertyand design mitigation plans for the project by the end of fiscal year 2010-11.EEP would have been required to construct 75% of projects by the end of thefiscal year.

• Under the Draft Instrument, EEP would be required to acquire property anddesign mitigation plans for the project by the end of fiscal year 2010-11. EEPwould have to do initial planting by the end of2013-2014.

In other words, because of the relaxation of these standards, mitigation for thisexample project would not be constructed until the June 2014 under the Draft Instrument.That is four full years after mitigation would have been constructed under the 2003 MOAand one year after it would have met its success criteria and been released for monitoringunder that MOA. The initial planting would not take place for almost four full years afterthe permit was issued and likely several years after impacts OCCUlTed.

These repeated revisions to EEP's governing documents highlight the specificproblems that the compensatory mitigation rule identified with in-lieu fee programs: lackof accountability and ineffective mitigation marked by substantial time lag. The DraftInstrument, which would regulate EEP activities in the future, does not address theseconcerns and, in fact, exacerbates many of the problems that have plagued EEP's effortsto provide effective mitigation. The Draft Instrument must be revised to attend to theseweaknesses in EEP's current program to ensure that the in-lieu fee program is primarily a

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means of effectively replacing lost environmental functions rather than a service to theregulated industry to speed the permitting process.

III. The Draft Instrument Must be Revised to Guarantee EEP Meets Existingand Future Mitigation Obligations.

The Draft Instrument continues the status quo for EEP, a status quo that has notprovided adequate mitigation to compensate for impacts from permitted activities. Thecompensatory mitigation rule provides an opportunity to shift EEP in a new direction,towards effective, advance mitigation to offset unavoidable impacts to aquatic resources.We recommend the following revisions.

A. Advance credits are unwarranted and should be prohibited.

Advance credits arc "credits from an approved in-lieu fee program that areavailable for sale prior to being fulfilled in accordance with an approved mitigationproject plan." 33 C.F.R. § 332.2 (2009). Any in-lieu fee mitigation program that allowsfor advance credits "must also contain [in its governing document] a schedule forfulfillment of advance credit sales." Id. Once the mitigation represented by advaneecredits has been completed, those advance credits are added back to the total for a givenCU. See id. In other words, if a particular CU has 10 acres worth of advance credits forwetlands, and all ten are sold, then that CU can regain its lO acres of advance credit byperforming 10 acres' worth of mitigation. Thus, by design, advance credits arecontinuously replenished by mitigation projects.

Advance credits are not required under the compensatory mitigation rule andshould not be granted to EEP based on its compliance history and existing resources. Therule provides that an "in-lieu fee program instrument may make a limited number ofadvance credits available." 33 C.F.R. § 332.8(n)(1) (emphasis added). The federal rulesdictate that the number of advance credits granted to an in-lieu fcc program must bebased on three factors: l) the program's compensation planning framework; 2) theprogram's record of compliance with its mitigation obligations; and 3) the amount offunding the program has available to implement mitigation prior to projected impacts. 33C.F.R. §§ 332.8(n)(I)(i)-(iii). The Draft Instrument awards substantial advance credits toEEP, failing to reflect either EEP's compliance record or current financial standing.

Historically, EEP has not been able to meet its mitigation obligations within thetime frames dictated by its operating agreements. Instead, as discussed above, it hasextended those time frames and eliminated standards requiring advance mitigation. Evenwith those significantly weakened standards and restarts of mitigation time frames, EEPhas not met its mitigation obligations. According to EEP's most recent quarterly reportto the Corps, it has not met its mitigation obligations on seventeen DOT projects acceptedfor mitigation. EEP Quarterly Report, Aprill through June 30, 2009, Appx. 1 . Includedin those overdue mitigation obligations are projects approved as early as 1997. Id. Thatfailed mitigation includes shortcomings in the Cape Fear, Catawba, French Broad,Hiawassee, Lumber, Tar-Pamlico, and Yadkin river basins. Id.

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EEP has also failed to meets its mitigation obligations on fifty-five non-DO'I'projects, some dating from as early as 1998. Id. at Appx. L. EEP's mitigation shortfallsare widespread; the agency has not met mitigation obligations in the Cape Fear, Catawba,Chowan, Little Tennessee, Lumber, Neuse, Savannah, Tar-Pamlico, White Oak, and

Yadkin river basins. Id. In one project alone, EEP has failed to provide more than 9,000mitigation units that were required for a permit issued in 1999. Collectively, the agencyhas failed to provide more than 22,000 mitigation units for which it has acceptedrcsponsi bi I ty.

Even if eventually met, these mitigation requirements arc long overdue. The timelag that will continue until this mitigation is constructed and determined to be successfulensures that aquatic resources have been degraded and that the mitigation provided willnot offset the environmental impact authorized by the Corps and DWQ in reliance on theprovision of this mitigation.

Awarding EEP advance credits under this Draft Instrument will guarantee thatthis time lag continues in the future and the environment continues to be degraded.Under the advance crediting scheme, "[l]and acquisition and initial physical andbiological improvements, including planting, necessary to satisfy the mitigationrequirements found in the DA permit must be completed by the end of the third full statefiscal year ... after NCEEP receives payment ... or a permit is issued." DraftInstrument at 12. EEP has repeatedly demonstrated that it cannot meet this standard,meaning that advance credits will result in substantially delayed mitigation - in somecases that delay may exceed a decade - and a resulting significant loss of environmentalintegrity. Neither DWQ nor the Corps would approve advance credits for a mitigationbank with this record; EEP should not be treated any differently. If EEP were amitigation bank, it would have been out of business years ago for failing to meet itscommitments.

The primary purpose of advance crediting, allowing an in-lieu fee program toobtain resources to initiate mitigation projects, also precludes granting EEP advancecredits. Because EEP has been in operation, in some form, for more than 10 years,advance credits are unnecessary to establish the program. In fiscal year 2008~09, EEPaccepted payments totaling $7,916,049.50 in its stream and wetland mitigation program.EEP 2009 Armual Report at 8. At the end of fiscal year 2008-09, the agency had morethan $20,000,000 in cash, with nearly $10,000,000 unencumbered. Id. at 15. This end-of-the-year cash balance suggests that EEP is capable of doing mitigation immediately toprovide for future impacts in a manner that ensures timely, appropriate mitigation thatreduces time lag. Therefore, unlike a new in-lieu fee program with no financial backing,EEP docs not need advance credits to facilitate its growth.

The funding of DOT mitigation should also preclude the award of advancecredits. Unlike non-DOT projects, EEP is regularly paid by DOT to mitigate for futureimpacts, As noted in EEP's 2008-2009 Annual Report, "NCDO'!' makes quarterlyinvoice payment to the EEP based on the actual mitigation projects in development

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throughout the state to meet all of the NCDOT's present and future anticipated needs."Id. at 7. DOT provides a steady revenue stream for EEP and, due to the nature of DOTplanning, impacts to streams and wetlands requiring mitigation can be forecast years inadvance. The Draft Instrument recognizes EEP's ability to provide for mitigation beforeimpacts occur, but unreasonably limits that requirement to impacts permitted after July 1,2013. For DOT projects implemented before July 1,2013, the mitigation project mustbe completed by the end of the fiscal year following the year the DOT project ispermitted. Draft Instrument at 12. Therefore, the Draft Instrument should not allow forany advance credits based on anticipated DOT impacts.

Finally, EEP's records demonstrate that the agency is accepting mitigationobligations it cannot fulfill through advance credits. EEP is accepting those mitigationobligations, then seeking alternative avenues, including the small impact policy describedbelow, to free itself from difficult mitigation situations. Sec, generally EEP QuarterlyReport April! through June 30,2009 at 16-37 (describing mitigation obligations EEP hasfailed to meet, largely due to difficulty of mitigating for certain types of impacts incertain watersheds). If a project proposes impacts that cannot be mitigated, the solutionis to deny the permit application, not to award advance credits that will later be satisfiedwith inappropriate mitigation, if they are satisfied at all. EEP has not demonstrated thatadvance credits serve any legitimate purpose in the continued operation of the program.Until it makes that initial demonstration, including a demonstration that it hasimplemented mechanisms to ensure that mitigation will be conducted within fixed timeframes, no advance credits should be awarded.

B. Transferring credits between cataloging units under the "smallimpacts" policy should be disallowed.

It is a central tenet of compensatory mitigation that mitigation done in closeproximity to the impact site is most likely to replace the ecosystem function of the loststream or wetland. Even though other factors may affect the location of a mitigation site,the rule states that "consideration should also be given to functions and services ... thatwilllikcly need to be addressed at or near the areas impacted by the permitted activities."33 C.F.R. § 332.3(c)(2)(ii).

The Draft Instrument's proposal to allow EEP to satisfy mitigation requirementsin one cataloging unit by using credits from adjacent cataloging units within the sameriver basin fails to recognize the importance of replacing lost ecosystem values within thevicinity of the impact site. Importantly, the use of these adjacent cataloging units is notbased on increased environmental benefit. Instead, the "small impacts" policy is based

on the circumstance where cumulative mitigation requirements amount to less than 1,000linear feet of stream or 3 acres ofwctlands. Draft Instrument at 9.

The "small impacts" policy is contrary to the watershed approach that forms thefoundation of the compensatory mitigation rule and defies the rule's intent of forcing in-lieu fee programs to function more like mitigation banks. In doing so, the small impacts

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policy misses an opportunity to advance stream and wetland mitigation in NorthCarolina.

First, the small impacts policy is not drafted to promote the watershed approach.While the watershed approach recognizes that mitigation decisions should consider "the

importance of landscape position and resource type of compensatory mitigation projectsfor the sustainability of aquatic resource functions within the watershed," the smallimpacts policy does not require any demonstration that mitigation cannot be done withinthe permitted activity's cataloging unit or that the aquatic resources affected by theactivity would be more appropriately offset the degradation caused by the permittedactivity. 33 C.F.R. § 332.3(c)(2)(i). Thus, the small impacts policy does not appear to beintended to promote mitigation that better offsets proposed impacts.

Second, by focusing on a single year's permitted activity, the small impacts policydocs not reflect the compensatory mitigation rule's concern regarding time lag thatplagues in-lieu fee programs generally or EEP's historical failure to provide promptmitigation. Rather than viewing small impacts as an administrative burden necessitatingborrowing from adjacent cataloging units, EEP should welcome small impacts as anopportunity to provide advance mitigation. As described above, EEP has developedfinancial resources that should allow it to begin advance mitigation. By using smallimpacts as an impetus to develop mitigation sites within a cataloging unit, EEP can take astep that will allow it to implement mitigation before impacts occur within certainwatersheds and eliminate the time lag that typically occurs with in-lieu fee programs.

C. The Draft Instrument should include specific penalties for failure tomeet mitigation obligations.

If the Draft Instrument is to provide greater accountability and performance, asintended by the compensatory mitigation rule, it must include express penalties for failureto meet mitigation obligations. EEP must be held to the timelines provided in the finaldocument and must be penalized for failing to meet those deadlines. IfEEP fails toprovide timely, effective mitigation to satisfy the obligations it has taken on, it must (1)forfeit any advance credits awarded to it, (2) mitigate unmet obligations at a minimum of2:1 ratio to accommodate for the time lag, and (3) submit procedural recommendations toprevent continued violations. This Draft Instrument ignores EEP's existing unmetmitigation obligations and pattern of noncompliance with provisions substantially similarits terms, it should expressly address the likely scenario of continued noncompliance andinclude measures to deter it.

IV. EEP has undermined the development of mitigation banks as the preferredmethod of compensatory mitigation.

Over ten years of operation, EEP and WRP have undermined the development ofmitigation banks in North Carolina. Mitigation banks are the preferred compensatorymitigation option under the federal rules, and the Draft Instrument will continue to stymiethe growth of mitigation banks in North Carolina and frustrate the intent of the federal

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rule that banks be the first option for compensatory mitigation. Mitigation banks havestricter requirements to operate. With the exception of a small amount of advance creditonce a bank is approved, mitigation banks must generate successful mitigation beforeselling credits. In-lieu fee programs such as EEP accept payments with a commitment tomitigate that mayor may not be fulfilled based on the track record ofEEP. At this point,we completely dismiss representations and commitments by EEP that the program willeventually generate advance credits given the repeated failure to meet thesecommitments,

Since mitigation banks are required to generate actual compensatory mitigationbefore credits can be utilized, regulatory requirements can be better evaluated byagencies and the public. Real compensatory mitigation can be considered in determiningwhether the impacts of a particular project are offset by the mitigation. In an in-lieu feeprogram, the mitigation condition in a permit to offset impacts is only an assurance thatmoney will be transferred to a program that may perform unspecified mitigation at someunspecified location. This is hardly a basis for the Corps to make a mandatorydetermination under the 404(b)(l) Guidelines that a project will not result in significantdegradation of waters because of the off-setting compensatory mitigation.

EEP has also undermined mitigation banks by historically charging fees formitigation that are inadequate to perform the compensatory mitigation required. Unlikemitigation banks, EEP does not operate in a market where mitigation credits are sold bywilling buyers and sellers, in which the fees necessarily reflects the cost of adequatelyperforming the compensatory mitigation, EEP operates by regulations which sets fees inadvance and has a history ofunderestirnating actual costs. Attempts to increase fees areoften opposed by permittees that want to take advantage of EEP as the cheapest option tomeet mitigation obligations in permits, and ultimately the public becomes accountable forthe costs arising from inadequate fees. EEP has still failed to account for how it intendsto cover the mitigation obligation for years of collecting inadequate fees to pay for itsassumed responsibilities, and the current public liability for this shortfall, The Corpsshould demand that EEP state this liability and explain how it intends to meet it beforeapproving any instrument.

The General Assembly has taken one step in prioritizing mitigation banks as thepreferred option by requiring permittees other than NCDOT to use mitigation banksinstead of EEP if banks are available in the watershed where the impact occurs. Anyinstrument should continue the direction established by the legislature and limit EEP tomitigation of only NCDOT projects. This will increase the likelihood of establishmentand expansion of mitigation banks as the preferred mitigation option under the federalrule.

IV. Conclusion

EEP offers valuable service to the State of North Carolina, particularly in itswatershed planning programs, Unfortunately, EEP's in-lieu fcc program has frequentlyfailed to provide effective mitigation and has not been held accountable for those

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shortcomings. Since its founding as WRP, the State's in-lieu fee program has not metmitigation performance standards defined in its governing documents, has relaxed thosestandards, and then failed to meet the relaxed standards. These accountability andperformance issues arc the problems that the compensatory mitigation rule was intendedto address. Rather than using that rule to redirect EEP, the Draft Instrument continuesdown the path of too lenient standards that will result in ineffective and substantiallydelayed mitigation. We recommend revising the Draft Instrument as described above toensure that mitigation provided by EEP fully replaces the degradation of aquaticresources resulting from permitted activities.

We appreciate the opportunity to submit these comments. Please contact us at(919) 967-1450 if you have any questions regarding their content.

Sincerely,

v2 f . c !q : -~t:Director, NC/SC Office

12! : .~~Staff Attorney

cc:David KnightBill GilmoreSen. Dan ClodfelterRep. Pryor Gibson

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